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The Impact of Entry Timing and Mode on the Performance of Korean FDI in China 1. 논문 (연구) 요약 The purpose of this research is to study the impact of timing and mode of entry on subsidiary performance considering parent firm-related factors, such as R&D intensity, international experience and marketing ability. Total of 102 Korean firms invested in Chinese markets are selected as a sample group in analyzing the relationship with their subsidiary performance using a multiple regression model. The analyses explain that early entrants have significantly and positively higher profitability and sales growth than late entrants. However wholly owned subsidiaries don’t always get higher subsidiary performance. The results also imply that parents’ specific advantages such as international experience and marketing ability profoundly influence their international marketing strategies and thus international performance, while R&D intensity has no obvious impacts on them. 2. 논문(연구)주제를 선정한 이유 Korean FDI has been increased quickly into China since the diplomatic relations were established between two countries in 1992. For Korean MNEs planning to contemplate expansion in Chinese market, three basic questions have often been considered: which markets to enter, when to enter those markets, and in what mode to enter the markets. There has been an abundant body of empirical literature on entry‐ timing effect. On the one hand, pioneers often earn a long‐ term market share advantage over late entrants. On the other hand, a growing body of evidence suggests that in some cases late movers outsell pioneers (Golder & Tellis, 1993; Lieberman & Montgomery, 1988; Lilien & Yoon, 1990). So it is necessary for Korean MNEs to determine the right entry timing into Chinese markets. Theoretical and empirical research also provides substantial support for a contingency approach toward entry mode selection. Many studies focus on alternatives such as exporting, licensing, joint ventures and wholly owned subsidiaries underpinned by either transaction cost theory or the OLI (Ownership―Location―Internationalization) 1 framework. Despite advances in entry mode studies, not enough considerations have been given to the performance implications of foreign market entry mode choices (Brouthers, Brouthers & Werner, 1999; Woodcock, Beamish & Makino, 1994).And Shaver (1998) suggests that mode performance is compared without regard to the characteristics of the particular investment decision. The issue gets more complicated if we further pay attention to the ability of internal capabilities and resources to facilitate in the implementation of firm strategies. Few researchers have explicitly measured and compared the integrative impact between timing or mode of international entry and parent firm’s advantages. Therefore, our study incorporates parent firm‐ specific determinants of a subsidiary’s performance while focusing on these two important factors. This is particularly necessary and important because performance is the outcome of many factors (Kerin, Varadarajan & Peterson, 1992).Drawing upon the literature in marketing, international business and economics, the effect of parent firm’s R&D intensity, international experience, and marketing ability was focused. 3. 연구(논문)의 목적 The object of this study is to examine the impacts of entry timing and entry mode on Chinese subsidiary performance, given that Korean parent firms have some specific advantages from R&D, international experience and marketing ability. 4. 논문(연구)의 선행연구 정리 1) Entry mode and transaction cost theory International entry mode choice is considered a critical strategic decision. In an attempt to understand this choice, scholars have primarily focused on transaction cost theory (Anderson & Gatignon, 1986; Brouthers & Brouthers, 2003; Gatignon & Anderson, 1988; Makino & Neupert, 2000). In their theory of internalization they proposed that firms adopted a number of different modes to enter foreign markets basing on heir cost, risk, return characteristics and the degree of control. And this theory is offered as an explanation of a firm’s behavior of maximizing profit by choosing the optimal entry mode for a desired foreign market (Grosse 1985). 2) Entry timing 2 The choice of entry timing is one of the major reasons for marketing success or failure (Booz, 1971). Allen & Hamilton, 1982; Crawford 1977; Hopkins & Bailey, The rational for he first‐ mover advantages one from four major perspectives, namely, economic, preemptive, technological and behavioral factors (DeCastre & Chrisman,1995; Yeung, Mitchell & Shaver, 1994). However, there are circumstances under which late entrants may overcome the disadvantages. The conditions include free‐ rider effects, low costs of imitation, and shifts in technology and consumer preferences leading to new product and market opportunities or simply the complacency of early movers (Carpenter & Nakamoto, 1989; Lieberman & Montgomery, 1988). 3) Resource based view The resource based view (RBV) is a relatively recent strategic management theory that aims to determine the skills and resources that allow a firm to develop a sustainable competitive advantage (Barney, 1991; Wernerfelt, 1984). The fundamental premise of the RBV is that possessing a particular combination of the skills and resources provides a firm with the ability to perform certain functions more effectively and more efficiently than its competitors (Barney, 1991). It suggests that firms obtain sustained competitive advantages by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses. In the interests of parsimony, these characteristics are considered under the headings of value, barriers to duplication and appropriability. Even where resources are clearly identified and understood, their imitation may be prevented through the legal system of property rights (Coyne, 1986; Hall, 1992, 1993). 5. 논문(연구)의 선행연구에서 당신이 중요하다고 생각하는 2 개 논문(연구)를 간략하게 정리하세요. 1) Entry mode and transaction cost theory International entry mode choice is considered a critical strategic decision. In an attempt to understand this choice, scholars have primarily focused on transaction cost theory (Anderson & Gatignon, 1986; Brouthers & Brouthers, 2003; Gatignon & Anderson, 1988; Makino & Neupert, 2000). 3 In their theory of internalization they proposed that firms adopted a number of different modes to enter foreign markets basing on heir cost, risk, return characteristics and the degree of control. And this theory is offered as an explanation of a firm’s behavior of maximizing profit by choosing the optimal entry mode for a desired foreign market (Grosse 1985). 2) Entry timing The choice of entry timing is one of the major reasons for marketing success or failure (Booz, Allen & Hamilton, 1982; Crawford 1977; Hopkins & Bailey, 1971). The rational for he first‐ mover advantages one from four major perspectives, namely, economic, preemptive, technological and behavioral factors (DeCastre & Chrisman, 1995; Yeung, Mitchell & Shaver,1994). However, there are circumstances under which late entrants may overcome the disadvantages. The conditions include free ‐ rider effects, low costs of imitation, and shifts in technology and consumer preferences leading to new product and market opportunities or simply the complacency of early movers (Carpenter & Nakamoto, 1989; Lieberman & Montgomery, 1988). 6. 논문(연구)의 연구모형을 제시하고 연구변수와 가설설정을 설명해주세요 1) R&D intensity 4 H1a : Given the higher, wholly ventures. condition owned that relative subsidiaries level have of higher parent’s R&D profitability H1b : Given the condition that relative level of parent’s R&D higher, wholly owned subsidiaries have higher sales growth ventures. intensity is than joint intensity is than joint H1c : Given the condition that relative level of parent’s R&D intensity is higher, Korean subsidiaries entering early in a given product sector in China have higher profitability than those entering late. H1d : Given the condition that relative level of parent’s R&D intensity is higher, Korean subsidiaries entering early in a given product sector in China have higher sale growth than those entering late. 2) International experience H2a : Given the condition that parent has more international experience, wholly owned subsidiaries have higher profitability than joint ventures. H2b : Given the condition that parent has more international experience, wholly owned subsidiaries have higher sales growth than joint ventures. H2c : Given the condition that parent has more international experience, Korean subsidiaries entering early in a given product sector in China have higher profitability than those entering late. H2d : Given the condition that parent has more international experience, Korean subsidiaries entering early in a given product sector in China have higher sale growth than those entering late. 3) Marketing ability H3a : Given the condition that parent’s relative marketing ability is higher, wholly owned subsidiaries have higher profitability than joint ventures. H3b : Given the condition that parent’s relative marketing ability is higher, wholly owned subsidiaries have higher sales growth than joint ventures. 5 H3c : Given the condition that parent’s relative marketing ability is higher, Korean subsidiaries entering early in a given product sector in China have higher profitability than those entering late. H3d : Given the condition that parent’s relative marketing ability is higher, Korean subsidiaries entering early in a given product sector in China have higher sales growth than those entering late 7. 논문의 연구변수가 서술해주세요 어떠한 선행연구로부터 근거하고 있나요 설명하거나 1) R&D intensity Kotabe & Okoroafo, 1990; Kotabe et al., 2002; Mansfield & Wagner, 1981 found positive relationship between R&D intensity and firm performance. Companies can improve their performances by focusing on product design/development and by improving their manufacturing processes. MNEs with stronger R&D capabilities should face lower technological barriers and have more negotiating power entering overseas markets and be less inclined to enlist joint ventures (Kogut & Chang, 1991). Full ownership can better protect their proprietary technology from being stolen by local rivals (Anderson & Gatignon, 1989). What’s more, researches suggest that particular R&D skills encourage earlier entry (Robinson, Fornell & Sullivan 1992; Lieberman & Montgomer, 1988). 2) International experience MNEs reducing with international experience can get the cost basing on the learning curve better effect performance by (Levitt & March, 1988). And a firm’s international experience is positively related to the amount of control sought because more experienced managers have a more accurate perception of foreign risks and returns. Empirical evidence of relationship between multinational experience and wholly owned entry mode selection was also observed by Caves & Mehra (1986). Besides, firms with experience in a related business may become early entrants since they already posses many of the necessary skills and capabilities needed to compete in the related field (Copper & Smith, 1992). 6 3) Marketing ability Firms that emphasize differentiation by heavy advertising and marketing activities are more likely to succeed in a multitude of diverse markets than those that do not (Helsen, Jedidi & DeSarbo,1993). Also, firms with strong brand names can charge premium prices in foreign markets to enhance their profitability as well. Researchers have argued that investors who spend more on advertising are more likely to favor wholly owned subsidiaries over joint ventures (Gatigonon & Anderson, 1989; Kogut & Chang, 1991). Moreover, a firm that spends money on advertising and promoting its products can increase sales by both expanding the sales of the product category and getting customers to switch to their brands. Therefore, it is easier for they are found to be early advertising is viewed as a Robinson & Fornell, 1985), reduce consumer uncertainty have more chance to enter these firms to overcome entry barriers and entrant (Schoenecker & Cooper, 1998). And when source of consumer information (Lynk, 1981; information provided by strong advertising can and meet less entry barriers so that firms early. 8. 가설검증에 관한 결과를 제시하고 설명해주세요. 그리고 결과가 어떤 의미를 나타내고 있나요 1) R&D intensity The hypotheses of H1a, H1c and H1d are accepted while H1b is rejected because the relationship between wholly owned subsidiary and subsidiary sales growth is insignificant here (p=0.206, adjusted R2 =0.267). Thus, fewer impacts of R&D intensity are found on entry strategies. 2) International experience The hypotheses of H2a, H2b, H2c and H2d are all supported. Considering the results of models 1, we are reminded that international experience really has some distinct influences on entry mode and entry timing, thus influences subsidiary profitability and sales growth. 3) Marketing ability 7 The hypotheses of H3a, H3c and H3b are accepted, while H3b is rejected. Therefore, subsidiary above, we timing and it shows that the higher the parent’s advertising intensity is the lower sales growth will be got through wholly owned mode. Considering the can get the idea that marketing ability has some positive impacts on entry negative impacts on entry mode, thus affects subsidiary performance 9. 통계분석결과가 주는 시사점(IMPLICATION)은 어떤 것인가요 First, early entrants with a relative advantage from parent’s R&D intensity, international experience or marketing intensity significantly and positively have higher subsidiary performance than late entrants. This finding is consistent with many previous researches on entry timing and performance (Lilien & Yoon, 1990; Robinson & Fornell, 1985). However, previous studies on entry timing mostly focused on profitability performance. Our study also adds another index sales growth. So that it is reassuring that early entrants entering an overseas market have a higher profitability and sales growth. Second, this study contributes to a better understanding of the impact of entry mode on subsidiary profitability in Chinese market. We find that wholly owned subsidiaries that have a relative advantage from parent’s R&D intensity, int’l experience positively and significantly have higher profitability than joint ventures. It is natural that higher subsidiary performance comes from the higher control, higher efficiency and lower cost of management. These results not only support previous studies that have attempted to assess the relationship between entry mode and performance. Third, it also clearly indicates that firm’s specific advantages profoundly influence their international marketing strategies and thus international performances. According to the results of this study, both international experience and marketing ability of parents are found to have some impacts on entry strategies and subsidiary performance, while R&D intensity doesn’t have such clear impacts. 10. 결론은 무엇인가요 One of the most important findings of the study is the integrative impact of entry mode, entry timing and the parent firm’s asset‐specific on the subsidiary performance. With respect to the Korean FDI invested in Chinese markets, both entry mode and entry timing incorporating with parent firm’s advantages are tested to have some impacts on subsidiary performances such as profitability and sales growth. First, early entrants with a relative advantage from parent’s R&D intensity, international experience or marketing intensity significantly and positively have higher 8 subsidiary performance than late entrants. This finding is consistent with many previous researches on entry timing and performance (Lilien & Yoon, 1990; Robinson & Fornell, 1985). However, previous studies on entry timing mostly focused on profitability performance. Our study also adds another index sales growth. So that it is reassuring that early entrants entering an overseas market have a higher profitability and sales growth. Second, this study contributes to a better understanding of the impact of entry mode on subsidiary profitability in Chinese market. We find that wholly owned subsidiaries that have a relative advantage from parent’s R&D intensity, int’l experience positively and significantly have higher profitability than joint ventures. It is natural that higher subsidiary performance comes from the higher control, higher efficiency and lower cost of management. These results not only support previous studies that have attempted to assess the relationship between entry mode and performance. Third, it also clearly indicates that firm’s specific advantages profoundly influence their international marketing strategies and thus international performances. According to the results of this study, both international experience and marketing ability of parents are found to have some impacts on entry strategies and subsidiary performance, while R&D intensity doesn’t have such clear impacts. 9