Polarizing effects of early exporting on exit.
| Verfasser | Deng, Ziliang |
| Posten | RESEARCH ARTICLE - Clinical report |
Abstract Extant research offers limited and inconclusive findings on the effects of early exporting by new ventures. This longitudinal study examines such effects, taking into consideration the roles of competition and adaptation in international venturing and exiting. The findings alert us to the potentially negative impact of early exporting on exit. Despite the deterrent effect of exporter competition, those new ventures that engage in early international venturing are impelled to keep strategically alert and expedite their learning process, therefore prospering in the highly competitive environment. By attracting foreign investors, new ventures will be able to start exporting early, and endorsed by the knowledge advantages associated with foreign partners the rapid entrants have better continuation chances. At the same time, early exporting in a relatively less competitive environment or without foreign ownership will lead to higher exit likelihood. By highlighting the polarizing effects of early exporting in the life cycle of new ventures, this study reconciles the difference between the process model and theories on international entrepreneurship to some extent.
Keywords Early exporting * Competition * Foreign ownership * Exit
1 Introduction
It is of significant strategic value to predict the duration of export projects based on their founding conditions, e.g., earliness of exporting (Geroski et al. 2010). However there has been no research explicitly examining the linkage between the timing of entry into export markets and subsequent exit. Extant studies so far have offered limited insights and inconclusive empirical findings on the effects of the foreign entry timing of new ventures on their post-entry dynamism (Autio et al. 2000; Hagen and Zucchella 2014). While the process model of internationalization suggests a sequential approach to foreign entry that helps firms to overcome the liabilities of foreignness (Johanson and Vahlne 1977), the literature on international entrepreneurship argues that early foreign entry helps firms to generate learning advantages of newness, which enables them to perform better in foreign markets (Autio et al. 2000; Gabrielsson et al. 2014).
Drawing on the perspective of organizational ecology, this study addresses the important but understudied link between early exporting and exit, in the case of startup exporters. We focus on exporting as it tends to be the most common foreign entry mode for startups, due to their limited resources for internationalization (Knight and Cavusgil 2004; Kuivalainen et al. 2007; Moen and Servais 2002). Exits from export markets have important strategic implications for startups as they are very likely to lead to firm closedown (Ilmakunnas and Nurmi 2010). Organizational ecology theory holds that the founding conditions of a firm or project will have a marked effect on its duration. The theory also holds that environmental selection and organizational adaptation are the main causes of organizational mortality (Hannan and Freeman 1989). In line with these theoretical propositions, we holistically examine the whole life cycle of young exporters, from birth to international venturing and exit, and we integrate with this, analyses on the antecedents and consequences of international entrepreneurship. We study how the earliness of exporting, as a founding condition of export projects, affects exiting from export projects, in our baseline model. Furthermore, we scrutinize the moderating effects of selection via exporter competition, and adaptation via foreign ownership, on the linkage between early exporting and exit from export projects.
To conduct the empirical analysis, this study employs a large longitudinal dataset of early exporters. We find that these exporters are likely to suffer if they choose a rapid entry strategy. The smallest and least inefficient new ventures tend to enter export markets most rapidly, although unfortunately they face a much higher risk of exit, manifesting the ecological selection process, which is amplified by the information asymmetry in the international entrepreneurship context. Moreover, competition between fellow exporters from the same country of origin and industry has a strong deterrent effect for potential entrants. However, once they get ready and enter international markets early, the exporter competition will have strong enabling and catalyzing effects on the learning capabilities and strategic vigilance of early exporters. Moreover, hosting foreign ownership helps exporters to improve their internal routines, access greater international networks and gain external legitimacy. Therefore, rapid entry into export markets with the presence of strong competition or foreign ownership will effectively reduce the likelihood of exit. At the same time, our empirical results indicate that early exporting in a relatively less competitive environment or without foreign ownership will lead to higher exit likelihood. By highlighting the polarizing effect of early exporting in the life cycle of new ventures, this study underscores the contingency conditions under which early entry into export markets may be either a wise or an inappropriate exporting strategy for a startup.
2 Theoretical Background
2.1 Timing of Internationalization and Firm Performance
The timing of starting to conduct international business, or age at entry into international markets, is one of the most important defining features in international entrepreneurship (Autio et al. 2000; Sapienza et al. 2006). In the recently emerging stream of literature regarding the speed of internationalization, various dimensions of speed have been examined, such as the timing of entry (Autio et al. 2000), post-entry expansion speed in terms of scope of countries (McNaughton 2003), intensity of overseas sales in the sales portfolio, and degree of geographical proximity (Sui and Baum 2014). While the literature usually refers to those dimensions of speed interchangeably, early entry and rapid post-entry expansion are conceptually different and may involve distinctive degrees of risk and strategic commitment (Autio et al. 2000, pp. 909-910). Compared with firms preparing for post-entry expansion, candidates for early initial entry may have no prior international exposure or experience, encounter a much higher degree of information asymmetry, and incur a stronger liability of foreignness. Therefore, post-entry expansion strategies are bound to be more rational, better reflecting firms' internal resources and external environments (Mudambi and Zahra 2007).
There are different views regarding how early a firm should engage in international business. The process model holds that internationalization is an evolutionary process (Johanson and Vahlne 1977). Due to limited resources and knowledge reservoirs regarding overseas markets, as outsiders, firms at the early stages of internationalization usually cannot handle external challenges adequately (Johanson and Vahlne 2009; Liesch et al. 2011). The theory on international entrepreneurship argues that firms may enter international markets in their early stage of business (Glaister et al. 2014; Nummela et al. 2014). By relying on modern information technology, for example (Deng and Wang 2016; Sinkovics et al. 2013; Yamin and Sinkovics 2006), early foreign entry may offer firms the "learning advantage of newness" that facilitates firm growth (Autio et al. 2000; Hagen and Zucchella 2014). Early internationalizers may exhibit particular traits that are ingrained in their organizational cultures, such as innovativeness, learning, dynamic capabilities and risk taking, which help them to accumulate market knowledge quickly and reduce international risks (Gabrielsson et al. 2014; Vahlne and Johanson 2013).
While the two aforementioned theories imply diverging effects of the timing of internationalization, the empirical evidence offers mixed results. For example, Mudambi and Zahra (2007) find that early internationalization does not result in a greater survival rate than sequential entry. They attribute the different survival rates of firms to firm resources and industrial environments. Carr et al. (2010) find that, while entry speed has a positive effect on post-entry short-term growth, the impact of speed on post-entry survival is inconclusive. Khavul et al. (2010) do not find a significant relationship between the timing of internationalization and firm growth either. Efrat and Shoham (2012) adopt a temporal approach and find that target market conditions have a short-run impact on firm performance, while firm capabilities exert long-lasting effects on firm success. However, neither the process model nor theories on international entrepreneurship fully explore the implications of early entry for exit. Exit from international markets, "de-internationalization", or the discontinuation of international business refers to the voluntary or forced reduction of international activities (Crick 2004; Welch and Welch 2009). Exit from international markets may be driven by a variety of factors, including changing market conditions, product life cycles, and low managerial commitment to international markets, among others (Benito and Welch 1997; Crick 2004).
2.2 Organizational Ecology Theory
Organizational ecology theory explains the birth, growth and mortality of firms as a result of the combination of two general processes, namely selection and adaptation (Hannan and Freeman 1977). Selection is a result of competition for limited market "carrying capacity", such as quality labor, raw materials and customer resources, between firms that belong to a particular population, competition that will lead to the shutting down of inefficient firms and the growth of productive ones (Hannan and Freeman 1989; Nickel and Fuentes 2004). Firms can accommodate and defuse this selective challenge through adaptive activities, however. A firm...
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