Social Ties and Foreign Market Entry: An Empirical Inquiry

Zusammenfassung

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This study attempts to document the influence of social ties on two critical components of foreign market entry (FME) decisions by small and medium-sized enterprises (SMEs): timing of entry and resource commitment. An ethnic Chinese group serves as the best candidate to underlie this research because ethnic Chinese networks often build on personal connections that are based on regional collegiality and kinship. From a sample of 173 Taiwanese SMEs, hierarchical regression results indicate that social ties are significantly related to FME decisions by Taiwanese SMEs in terms of both the timing of entry and resource commitments.

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Auszug

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Social Ties and Foreign Market Entry: An Empirical Inquiry

Introduction

This article focuses on two key aspects of foreign market entry (FME) decisions by small and medium-sized enterprises (SMEs): The timing of entry and the commitment of resources. The timing of market entry is a central concern in strategic decisions (Miller/Folta 2002), and the resources committed by a firm to a foreign market confer high potential risks because the commitment sacrifices flexibility and increases the company's exposure to the uncertainties of a new market (Ghemawat 1991). Both aspects also have strategic influences on entrants' subsequent performance in the foreign market (Isobe/Makino/Montgomery 2000, Pan/Li/ Tse 1999).

Theoretical expositions of the timing of entry appear in the literature surrounding industrial economics (Knickerbocker 1973) and strategic management (Lieberman/Montgomery 1998). In the mainstream international business literature, resource commitment generally has been explained according to John Dunning's (1979) eclectic theory framework, transaction cost economics (Williamson 1981), and the process model (Johanson/Vahlne 1977). Although such research, based primarily on economic rationales, provides valuable insights into FME decisions, recently emerging evidence suggests the strong influence of social relations on these decisions (Axelsson/Johanson 1992, Ellis 2000), export initiations (Ellis/Pecotich 2002), and partner identification (Wong/Ellis 2002). Thus, the existing analytical focus from the strategic management and economic efficiency perspectives may overlook the role of social factors in FME decisions.

Moreover, the literature lacks sufficient details about FME by SMEs, because a majority of existing studies focus almost exclusively on established, large multinational corporations (MNCs). Although these studies have enhanced knowledge about FME by MNCs, their analytical framework may not be entirely applicable to SMEs, which are constrained by their resource unavailability, lack of brand recognition, and inadequate management (Erramilli/D'Souza 1993). These inherent limitations constitute significant barriers for SMEs that want to invest in foreign markets. Therefore, SMEs that intend to undertake foreign direct investment (FDI) must explore and rely on unique or nontraditional resources that differ from those that large MNEs use to overcome their size-related disadvantages.

Drawing on social capital theory, we offer an alternative perspective to explain timing of entry and resource commitments by SMEs. Specifically, we aim to examine whether the close social ties of SME executives significantly influence the timing of entry and resource commitment; to do so, we extend the social capital perspective to the understanding of the FME decisions by international SMEs. The central proposition of this study is tha...

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