Whose Culture Matters? Near-Market Knowledge and Its Impact on Foreign Market Entry Timing

Market entry decisions are some of a firm’s most important strategic choices. Although some recent studies have begun to consider the impact of learning and experience on foreign market entry, no study has examined the impact of a firm’s own operations in similar markets on subsequent entry decisions. In this study, we introduce the concept of near-market knowledge to reflect the knowledge firms generate by operating in similar markets, both culturally and economically. We compile extensive data on the complete foreign market entries of 19 multinational firms. We use a hazard model on 722 entry observations to evaluate the impact of our dynamic near-market knowledge measures and other economic and cultural variables on foreign market entry timing. In contrast with much previous research, we find that cultural distance from the domestic market is not a significant factor. However, we do find significant effects for our new measures of near-market cultural and economic knowledge. We find significant effects for several other economic variables as well. We discuss the implications of these findings for future research and management practice. INTRODUCTION Market entry decisions are some of a firm’s most important strategic choices. Entering new markets requires a major commitment of financial and managerial resources. These commitments can be particularly high when firms enter foreign markets. Even though many companies established multinational operations long ago, many of today’s leading companies are currently making these important foreign market entry decisions. For example, Yahoo! and America Online are deciding which markets to enter in Europe, Asia, and Latin America (Wall Street Journal 2000a). More broadly, using Business Week’s (2000) determination of the top 50 companies in the S&P 500, half of these 50 companies were established within the last 20 years and began to internationalize only within the last ten years. These companies include Dell Computer and Cisco Systems as well as retailers like Home Depot and Best Buy. Yet, companies have had mixed success expanding in foreign markets. For example, the merger between Lycos and Terra Networks, the second-biggest Internet firm in Europe, “is an admission that neither has done particularly well outside their home market” (Wall Street Journal 2000b). Therefore, today’s internationalizing firms need to know as much as possible to decide which foreign markets to enter and when to enter those markets. Recently, researchers have begun to examine the impact of knowledge and learning on a firm’s internationalization efforts. Although these factors are expected to impact international entry, currently “there is little evidence that supports such learning effects” (Barkema et al. 1996, p. 155). In an empirical analysis, Barkema et al.’s (1996, p. 161) results “suggest that there are no general learning effects.” However, they do find evidence of learning in some sub-samples of their data. In contrast, Shaver et al. (1997) find support for the importance of foreign firms’ experience in the U.S. on the survival of their subsequent ventures in the U.S. market. In related