Modelling MNCs’ market entry order strategy: evidence from China
Modelling and Simulation Society of Australia and New Zealand Inc. (MSSANZ)
School of Business and Law
There are a number of studies focusing on firms’ export behavior and market entry decisions, but mostly applying the Net Present Value (NPV) Theory to the developed market economies and a few studies on the market entry order of multinational enterprises (MNEs) in the emerging economies (EM), especially on the largest trading country and the fastest growing emerging economy of China. The purpose of this paper is to study the market entry order of the Chinese exporters and document the contribution of extensive margin during the internationalization process of Chinese MNEs by incorporating the unique institutional feature and matching the big data of China's Customs Database and Chinese Industrial Enterprise Database. In particular, we use the big matched data to screen exporting firms in a “new product-market combination” along with the extensive margin and at different product and ownership level from 2001 to 2006, and then examine whether a firm behaves as a pioneer or a follower when exporting a new combination and when a firm follows the pioneer to enter the market once they decide to become a follower in a new combination. To our knowledge this is among the first to study comprehensively the market entry order of Chinese MNEs in their internationalization process. This study implies three major contributions. First, it performs a comprehensive big data matching by industry, market, product line and ownership using China's Customs Database and Chinese Industrial Enterprise Database to study the market entry order of Chinese MNEs. This will allow us to better understand firms’ export behaviors and market entry order and contribute to the existing literature. Then, this study examines not only Chinese MNEs’ decision choice of being a pioneer or a follower, but also the timing of entry to the international market under different product categories and ownership. This advances our knowledge of how the Chinese MNEs internationalize and how to compare with MNEs from other countries. Finally, this study documents the dynamic contribution of extensive margin for the Chinese MNEs, and draws important policy implications on how and if China can sustain its rapid export growth. The results show that firms' choice of being a pioneer or a follower in exporting each new productmarket portfolio is jointly determined by the firm-level and host-country-level characteristics, and that firms with larger scale, higher productivity, lower production costs, less fierce competition and smaller credit constraints are more likely to be pioneers. We also find that the timing when to follow is influenced by the pioneers’ performance and product category. The results further confirm the existence of crowding out effect and spillover effect between pioneers and followers.