The Relationship Between Timing, Speed, and Performance in Foreign Market Network Entry.
| Verfasser | Hilmersson, Mikael |
| Posten | RESEARCH ARTICLE |
1 Introduction
Two of the most dominating recent research streams on small- and medium-sized enterprises' (SMEs) internationalization--that is (1) research that highlights the importance of networks for SMEs' internationalization and (2) studies on the timing, earliness and/or speed of SMEs internationalization--have rarely connected to engage in a serious conversation (Johanson & Johanson, 2021). While the former stream claims that SMEs' internationalization is best understood as a network entry process (Sandberg, 2013) and to become an insider (Johanson & Vahlne, 2009; Schweizer, 2013), little is known about the timing and speed of such a network entry (Johanson & Johanson, 2021). Similarly, even though recent research on SME internationalization processes has made progress in its understanding of the impact of timing and speed on the process (Hilmersson et al., 2017), little of these insights have been employed to understand foreign network entry processes (Johanson & Johanson, 2021). Since internationalization traditionally has been considered as the spread of activities over country borders (Batsakis & Theoharakis, 2021) where the main liability to be overcome is that of foreignness (Johanson & Johanson. 2021), research defines earliness of internationalization as the time elapsed between inception and the first sales in a foreign country (Acedo & Jones, 2007; Gassmann & Keupp, 2007; Musteen et al., 2010; Ramos et al., 2011; Rialp et al., 2005). In addition - highlighting the liability of foreignness (Johanson & Vahlne, 1977) - speed of international expansion is measured by dividing the number of countries entered by the time elapsed since the first foreign sales Cherry et al., 2014; Hilmersson et al., 2017; Hsieh, Child, Narooz, Elbanna, Karmowska, Marinova, Puthusserry, Tsai, & Zhang, 2019; Sadeghi et al., 2018).
Drawing on the above, this paper takes the initiative to bridge the above-sketched lack of conversation between the stream of literature pertaining to the internationalization of SMEs as a network entry process and the stream of literature focusing on earliness and speed of entries into new countries as suggested by Forsgren, Holm and Johanson (2015). We use a unique data set from Swedish SMEs' entries into foreign business networks that were opened to enter at a specific point in time. In the early 1990s, the former Soviet Union and China went through major liberalizations and the business networks in Russia, the Baltic States and Poland along with the Chinese business network offered previously unseen business opportunities for Western firms (Jansson & Sandberg, 2008). In this study, we track the entry of Swedish SMEs into these major growth markets of that period, and we seek to explain the performance consequences of the timing and speed of entry into the newly opened business networks. Inspired by Jiang et al., (2014). we capture the timing of network entry by subtracting the year an SME had its first sales in the network from the year the foreign network was opened for international trade. Furthermore, we capture the speed of network entry by dividing the network position gained by the time taken to reach this position as suggested by Johanson & Johanson (2021).
Since most of the SMEs in our study use exporting as their predominant mode of doing business in foreign markets, our study is specifically about exporting firms. Assuming that a customer is connected to a network, in our paper the first export sale to a customer in a foreign market represents the entry node into a new network (Hilmersson & Jansson, 2012). Accordingly, we use the point of time when the first sales in the foreign network took place as our measure of timing of network entry. Our approach is consistent with the network perspective (Blankenburg Holm et al., 1996; Johanson & Vahlne, 2009) arguing that international business takes place in a network setting because each business is part of a network of other relationships. Thus, in our study we consider that the customer does not work in isolation, but has relationships with other actors in the network, such as suppliers, distributors, customers' customers, and institutional and governmental actors. We build on the rationale that the customer relationship allows the SME to enter this wider network in the foreign market where the customer resides. As the firm interacts with this customer, the firm learns about the customer's strengths and weaknesses and about the foreign market (Johanson & Vahlne, 2009; Johanson & Johanson, 2021; Fraccastoro et al., 2021). Furthermore, drawing on Johanson & Johanson (2021), we understand network entry speed as the relation between a well-developed (in terms of business transactions) position gained in the business network and the time taken to reach this position. We thereby contribute to the internationalization literature by empirically testing an alternative view on internationalization speed. Understanding the internationalization process from a network perspective, we consider internationalization as a process of network entry and positioning by the firm. This is in line with Johanson & Vahlne (2009), suggesting that the main challenge of the internationalizing firm is to move from a network outsidership to an insidership position in relevant networks. We contribute to this literature by shedding light on the timing and speed involved in the process of moving from outsider- to insidership in business networks.
Second, while existing research has suggested that an SME's network position is positively related to the firm's performance (Cherry & Patterson, 2002; Gerschewski et al., 2020; Hilmersson & Jansson, 2012; Johanson & Vahlne, 2009), we still lack knowledge on how timing and speed of network entry influences performance within the network. This leads to our second contribution, which is to reveal the performance consequences of both the timing and the speed of a firm's network entry.
In sum, we seek to answer the following research question: How does the timing and speed of foreign network entry influence SME performance? Along the lines suggested by Johanson & Vahlne (2009; 2017), we view internationalization as a capability development process and hence, we develop our theoretical model by drawing on mechanisms in capability development theory and insights from the first mover advantage literature. We test our theoretical model on a sample of 198 foreign network entries by Swedish exporting SMEs. The data, which was collected on site at all firms' facilities, shows that: (1) the earlier in time the network was entered, the better the performance, and (2) there is a curvilinear (inverted U-shaped) relationship between network entry speed and firm performance. Consequently, we suggest that firms should move first to allow themselves time to grow slowly in the market entered. If the entry is postponed for a later period, then the network position will need to be developed with a high speed to catch up with competitors. Thus, there is a greater risk that the firm's resources and capabilities will be overstrained because of time compression diseconomies (TCD) in their development process.
We structure the remainder of the paper as follows. First, we present a review of the literature. Second, we provide the theoretical background of the paper, wherein we introduce the underlying mechanism of the hypothesis. Third, the hypotheses of the paper are developed. Fourth, we present the method and results of the study. Fifth, the results are discussed, followed by the conclusions, managerial implications, and suggestions for further research.
2 Literature Review
2.1 Internationalization as a Network Entry Process
The network perspective views markets as systems of long-term interdependent relationships between customers and suppliers (Blankenburg-Holm, Eriksson & Johanson, 1996; Hakansson & Johanson 1993; Johanson & Johanson, 2021; Yamin& Kurt, 2018). In these relationships, firms adapt and modify their operations, which means that mutuality and interdependence emerge. The network perspective suggests that internationalization is the process of firms' actions to establish relationships and strengthen network positions (Johanson & Vahlne, 2009). In this process, firms establish new positions, develop old positions, or increase the coordination between positions in a network (Johanson & Mattson, 1988). Their decisions are contingent on interactions with other firms (Chetty & Blankenburg-Holm, 2000; Ellis & Pecotich 2001; Sedziniauskiene et al., 2019; Wilkinson & Young, 2005). The firm's position is better developed if the firm has more long-term and robust relationships, and the strength of relationships reflects the magnitude and symmetry of interdependence in the relationships.
A firm's network position is a source of information and strengthens the resource base (Gerschewski et al., 2018; Lee et al., 2020; Puthusserry et al., 2020). However, the network also hinders opportunity development in path-dependency rigidness (Sandberg, 2013). When a firm enters a specific country market, it establishes a position in the foreign market's network and progresses from being an outsider to holding an insidership position (Johanson & Vahlne, 2009; Kurt & Yamin, 2018).
An insidership position implies many well-developed and interdependent relationships (Hilmersson & Jansson, 2012), which promotes cooperation and coordination (Coleman, 1990; Gerschewski et al., 2018). This is because insidership entails a firm network, where firms have a lot of knowledge about the other firms in the network and where the same knowledge reaches the firm from different sources, such as suppliers, customers, and competitors. The firm has a central position and few or no relationships with outside firms that can introduce new knowledge (Burt, 1992). An insidership position thus implies that much of the knowledge gained is a repetition of the knowledge...
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